B3 Volumes Stay Strong Despite Foreign Capital Flight

The average daily trading volume (ADTV) for cash equities on Brazil’s B3 exchange is expected to reach 31.6 billion reais ($5.5 billion) in May, representing a 21% increase compared to the same period last year, according to estimates by Citi.

Despite the strong year-on-year growth, the figure marks an 11% decline from April. Official data from B3 (B3SA3.SA) has yet to be released.

MARKET TURNOVER AND RECOMMENDATION

Citi analysts Gustavo Schroden, Arnon Shirazi, and Brian Flores noted that turnover velocity slipped to 148% in May, down from 164% in the previous month. However, the bank remains bullish on B3, maintaining a "Buy" recommendation with a price target of 23 reais, implying a nearly 40% upside from its current trading level.

"2026 started strong, and while there has been a cooling off in the second quarter, performance remains well above 2025 levels," the analysts wrote, noting a year-to-date quarterly average of 33.5 billion reais.

FOREIGN CAPITAL OUTFLOWS

In a separate development, foreign investors withdrew 190.8 million reais from the Brazilian stock market on May 28, a session in which the benchmark Ibovespa index fell 0.39%.

The withdrawal brought the total net outflow for foreign investors in May to 14.2 billion reais. Despite the monthly slump, international investors maintain a significant net positive balance of 42.2 billion reais for the year 2026.

In the same day, the US government has classified the two main criminal organizations in Brazil (PCC and Comando Vermelho) as global terrorist groups is expected to have significant ripple effects on Brazil's financial markets. 

Experts warn that this move increases the "country risk" premium and signals institutional fragility, potentially lowering Brazil's credit rating. Key sectors like mining, agribusiness, and banking must now implement stricter compliance to avoid severe U.S. sanctions. 

Economically, this heightened risk perception could trigger capital flight, pressure the Real to depreciate against the Dollar, and force the Central Bank to adjust interest rates to combat potential inflationary spikes.

INSTITUTIONAL AND INDIVIDUAL TRENDS

While foreigners pulled back, local institutional investors showed resilience:

• Institutional Investors: Recorded a net inflow of 265.6 million reais on May 28, bringing their monthly total to a positive 12.4 billion reais.
• Individual Investors: Contributed 129.3 million reais in the same session, ending May with a positive balance of 5.4 billion reais.

The data highlights a shifting dynamic in Brazil's capital markets, where domestic institutional support is partially offsetting the recent retreat of international capital.